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Government Reduces Domestic Borrowing – Ken Ofori-Atta



According to Ministry of Finance data, the government has curtailed its participation in the domestic debt market after frontloading its financing needs in the first half of the year – i.e. planning to borrow more for the first six months of the year.

According to the Treasury Department of the Ministry of Finance’s new issuance calendar released on Monday, the government plans to issue GH21.17 billion in the fourth quarter, of which GH20.13 billion will be used to rollover maturities and the remaining GH1 billion – or 4.9 percent of the total target – will be used to meet the country’s financing needs.

In the preceding calendar quarter, the government set a fresh issuance target of GH611.94 million, or around 2.6 percent of the entire objective for that time period.

However, the government required GH2.61 billion and GH4.13 billion in additional issuances from the domestic debt market in the first and second quarters, respectively, suggesting that new issuances in the first half were larger than those in the second half.

Given the rising debt levels – particularly in the first half of the year – the move is welcome. The public debt stock climbed to 77.1 percent of GDP at the end of June 2021, up from 76.1 percent at the end of December 2020, including bailouts for the financial and energy sectors.

Senior analyst with Databank Research, Courage Kingsley Martey, noted in a previous interview with the B&FT that the reduced demand for new issuances is an encouraging signal in the context of market concerns about the rate of increase in Ghana’s debt stock.

“The low need for fresh issuances reflects the strong investor demand and excess uptake at issuances during the first half of 2021. So, it is encouraging to see the Treasury scaling back on new issuances as the domestic financing requirements are met,” he explained.

After falling to significantly low levels, domestic yields have picked up since the third quarter, mainly due to selling pressures from non-resident investors; which has created an excess supply of bonds on the secondary market without a corresponding bid to match, leading to a drop-in bond price (a rise in yields).

Thus, government’s further decision to limit new issuances could help restrain the extra upward pressure on yields in this last quarter, subject to other key factors such as inflation and forex risks.

But the fact that a majority of the planned issuance is rolling over of existing debt means investors will still need to deploy the cash on their balance sheet.

Consistent with the Medium-term Debt Management Strategy, government indicates that it may announce other tap-ins/reopening of existing instruments depending on market conditions.

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